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NEW YORK — The Dow Jones industrial average and Nasdaq composite index posted their strongest one-day gains since early February in Monday's trading session following news that the improving manufacturing sector has managed to create jobs — a key piece of the economic recovery that, to date, has been lacking.

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The manufacturing sector further expanded in February, although at a slightly slower pace than expected, according to the Institute for Supply Management (ISM). Analysts said the sector was consolidating its gains and preparing for stronger growth in the future.

“We’ve been in a five or six week period when the market hasn’t performed, so it’s natural to see a rebound, and manufacturing data was positive, so that’s a catalyst today,” Green added.

Although the ISM’s main business index fell to 61.4 in February compared with a revised 63.6 in January, analysts noted that the group’s subindex for employment was surprisingly higher.

“This helps support the feeling that the employment picture is improving,” said Peter Dunay, chief market strategist at Wall Street Access. “Everything we’ve been seeing is that employment is getting better, but it’s not where everyone wants it to be.”

The Dow index jumped 94.22 points, or 0.9 percent, to 10,678.14, posting its biggest one-day point gain since Feb. 11, while the technology-focused Nasdaq composite rose 27.98 points, or 1.4 percent, to 2,057.80, seeing its biggest gain since Feb. 6, despite concerns about the strength of stocks in the semiconductor sector.

Another indicator of employment growth will come Friday as the government issues its report on job creation during February. Andrew Valerie, senior vice president and equity strategist at LPL Financial Services, said that number will come under close scrutiny.

“The data has to find a really fine line of not being overly strong over overly weak,” Valerie said. “Too low, you get worries about the lack of jobs. Too high, you start wondering about interest rate hikes.”

Before the session began, the Commerce Department reported consumer spending rose 0.4 percent in January, in line with economists’ expectations and just slightly lower than the strong 0.5 percent rise from December. After-tax incomes rose 0.8 percent in January, up from 0.3 percent the month before.

While spending remained healthy, consumer incomes grew by only 0.2 percent in January, compared with 0.4 percent for December. The income reading fell short of the 0.6 percent growth forecast by Wall Street, but the spending number appeared to hold more weight with investors.

In the meantime, semiconductor stocks were mixed as J.P. Morgan analysts downgraded the entire sector, citing soft demand for microchips. Intel Corp. gained 49 cents to $29.69, while rival Advanced Micro Devices Inc. dropped 11 cents to $14.89. Morgan Stanley began an investor conference on semiconductors Monday, where Intel and AMD officials were expected to provide outlooks for the near term.

Sepracor Inc., whose insomnia medication received tentative approval from the U.S. Food and Drug Administration, skyrocketed $15.99, or 56 percent, to $44.30. Another pharmaceutical firm, MedImmune Inc., sank $1.59 to $24.10 after reducing its first-quarter and 2004 outlook.

With closing arguments under way in Martha Stewart’s trial, investors sent shares of Martha Stewart Omnimedia Inc. down 61 cents to $13.92. The judge in the case dismissed the most serious of the charges last week.

The Russell 2000 index of smaller companies rose 9.21 points, or 1.6 percent, to 594.77. It was the index’s biggest one-day gain since Feb. 17.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 1.45 billion shares, compared to 1.51 billion on Friday.